We have a LLC in which one of the partners receives a commission based on sales. We treat this as a guaranteed payment. The partner earns his fourth quarter commission in Q4 but doesn't get paid until the customer pays which is in Q1. The LLC and partners all have calendar year ends. We accrue the partner's commission/guaranteed payment at 12/31/2013. When is the partner taxed on his guaranteed payment? It seems he would get taxed on it in the year he gets paid (2014), not when it is earned (2013). Is there a rule, that if the partner gets paid his guaranteed payment within a few weeks after year end, he needs to include it in the prior year (in this case 2013)?
partner in LLC get guarant. pmt based on sales. Q4 GP earned in '13, paid in '14
Jan 18, 2014
1 Replies
I'm quite sure that the guaranteed payment is considered an allocation of the partnership's taxable income, and that it's taxed to the partner in the year that it's "earned" whether or not it has been paid out by the end of that year.
If memory serves (and that's becoming a bigger if, as time passes) the answer is spelled out very clearly in the partnership regulations, and you should be able to find it in there, easily. It's probably *underlined* in my copy of the regs.
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